The casual observer could be forgiven for thinking that European antitrust regulators have declared war on American tech giants.
On June 27, the European Union imposed a €2.4 billion (US$2.75 billion) fine on Google for giving favorable treatment in its search engine results to its own comparison shopping service. And Germany’s antitrust enforcer is investigating Facebook for asking users to sign away control over personal information.
In contrast, American antitrust enforcers have shown little interest in these companies. The Federal Trade Commission (FTC) did open an investigation into whether Google has a search bias, but closed it in 2013, despite recognizing that it “may have had the effect of harming individual competitors.”
Anti-Americanism, however, does not explain these starkly different approaches. Europe targets homegrown companies with the same ferocity. Last summer, for example, the EU fined a cartel of European truck-makers even more than it did Google.
Instead, the divergence is explained by America’s abandonment in the 1980s of the theory that competition promotes innovation, which is still embraced by Europe today. America now seems to operate under the theory that competition threatens innovation by denying companies that develop a superior product the rewards of monopoly.
My research suggests that embrace of this new theory has led to under-enforcement of America’s antitrust laws, which may in turn have actually held back innovation.
Betting on competition
The mission of antitrust law, first articulated by the framers of the Sherman Act in 1890, is to ensure that markets contain large numbers of equally matched competitors. That’s why Europe calls its own antitrust rules “competition law.”
The Sherman Act implemented this goal by prohibiting two things: “restraint of trade,” such as price fixing, and monopolization, the attempt of a powerful company to keep competitors out of its markets. European competition laws have a similar bipartite structure.
The EU case against Google falls under the second category, monopolization, or as Europeans dub it “abuse of dominance.”
One of the most important and difficult areas of the law of monopolization involves infrastructure, which can be anything from the roads that crisscross America to the engineering standards that mobile phones use to communicate. Great innovations, such as Google’s search engine, often become the infrastructure that the next generation of competitors need to access in order to create their own, innovative products. But the infrastructure owner will often shut those competitors out, to maximize profits.
The goal of antitrust law would seem to require that its enforcers – the Department of Justice and the FTC in the U.S. – sue to force owners to share their infrastructure on reasonable terms with competitors.
But in the 1960s, skeptics – particularly antitrust economists and lawyers associated with the University of Chicago and led by Robert Bork – started to argue that forcing a business to share its infrastructure on an equal basis with competitors reduces the rewards a company can expect to generate from innovation, potentially discouraging technological progress....MUCH MORE